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  • Writer's pictureJay A. Hines

The Impact of Hurricane Idalia on Florida's Insurance Industry

Introduction

Hurricane Idalia made landfall on Florida's Gulf Coast, causing significant damage and leaving a trail of destruction in its wake. As cleanup efforts begin, the storm has highlighted the ongoing challenges faced by Florida's insurance industry. This article examines the impact of Hurricane Idalia on Florida-only insurers, the rising costs of insurance policies in the state, and the need for better coverage against flood-related damages.



Florida-Only Insurers and Hurricane Idalia

Florida-only insurers, such as Citizens Property Insurance, anticipate fewer losses from Hurricane Idalia compared to previous storms in the state. While the preliminary loss projections are not yet available, Citizens expects fewer than 10,000 claims related to Idalia, a significant decrease compared to the 68,000 claims received after Hurricane Ian in September 2022. The relatively lower number of claims can be attributed to Idalia's path, which predominantly affected rural areas and missed major metropolitan regions like Tampa Bay and Jacksonville.


Challenges Faced by Florida's Insurance Industry

The insurance industry in Florida has been facing numerous challenges, with hurricanes and other natural disasters causing significant financial strain. The increasing frequency and intensity of storms have led to skyrocketing insurance policy costs, far exceeding the national average. The average home premium in Florida is approximately $6,000 per year, compared to the U.S. average of $1,700.


The state has witnessed a thinning insurance market, prompting several insurers to pull out of Florida due to the risk of heavy losses. Farmers Insurance, Bankers Insurance, and Lexington Insurance are among the companies that have decided to exit the state, leaving policyholders uncertain about their coverage options. The withdrawal of insurers from Florida's market has led to a shift in risk-bearing from the private sector to the public, potentially impacting taxpayer dollars.


Rising Insurance Costs and Premiums

The escalating costs of insurance policies in Florida have become a major concern for homeowners. Insurance premiums have increased significantly in recent years, primarily driven by the rising costs of reinsurance. Insurers in Florida have been acquiring adequate levels of reinsurance to protect themselves from high claims, but this has resulted in material increases in reinsurance costs, ultimately affecting the affordability of insurance coverage.

Gregory Buck, the president and owner of National Risk Experts Insurance, states that insurance premiums in Florida have already been four times the national average. He anticipates further increases, ranging from 100% to 300% depending on the location and characteristics of the homes. Homeowners are left grappling with the decision to either bear the burden of rising premiums or go without insurance, potentially exposing themselves to significant financial risks.


The Role of Citizens Property Insurance Corp.

As private insurers reduce their exposure to the Florida market, Citizens Property Insurance Corp. has emerged as the state's fastest-growing insurer. As a nonprofit, state-backed insurance provider, Citizens acts as the "insurer of last resort." Since 2019, the company has experienced a significant increase in policies, with more than 1.4 million policies currently in force, covering approximately 1 in 8 Florida households.


The growing reliance on Citizens reflects the challenges faced by private insurers and their retreat from the state. The increasing number and intensity of storms have led to a greater demand for coverage, pushing homeowners towards the state-backed insurer. However, this shift in risk-bearing from the private sector to a government entity may have implications for taxpayers.


Legislative Reforms and New Insurance Companies

Recognizing the need for market stability, legislative reforms have been passed to attract new insurance companies to the Florida market. Four new insurers are set to enter the market next year, which could potentially alleviate some of the pressure on existing insurers and provide homeowners with more coverage options. However, the market share these new companies will capture and the rates they will offer remain uncertain.


The Need for Flood Insurance

Florida's susceptibility to flooding poses a significant challenge for homeowners, compounded by the fact that a large percentage of residents do not have flood insurance. Only 18% of Floridians have flood insurance coverage, leaving the majority of homeowners unprotected against flood-related damages. Many homeowners mistakenly assume that their standard homeowners or hurricane policies cover flooding, but this is not the case.


The lack of flood insurance coverage is a critical issue, especially considering that hurricanes are a prevalent threat in Florida's low-lying areas. The federal National Flood Insurance Program, administered by the Federal Emergency Management Agency (FEMA), offers flood insurance, but the majority of Floridians remain uninsured. This leaves homeowners vulnerable to significant out-of-pocket costs following flood-related damages.


The Impact of Inaccurate Flood Risk Mapping

Compounding the issue of flood insurance coverage is the inaccurate mapping of flood risk areas. FEMA's flood maps do not adequately designate many flood-prone areas in Florida, leaving homeowners unaware of the risks they face. The First Street Foundation, a nonprofit research group, estimates that over 785,000 properties in the state face flood hazards but are not recognized as high risks in FEMA's flood maps.


The lack of accurate flood risk mapping results in homeowners being inadequately prepared for potential flooding and underinsured for flood damages. This further emphasizes the need for homeowners to obtain flood insurance coverage independently to protect themselves against the financial devastation caused by flooding.


Conclusion

The aftermath of Hurricane Idalia serves as a reminder of the challenges faced by Florida's insurance industry. Florida-only insurers anticipate fewer losses from Idalia compared to previous storms, but the rising costs of insurance policies continue to burden homeowners.


The withdrawal of insurers from the market has led to a reliance on Citizens Property Insurance Corp., the state-backed insurer of last resort. Legislative reforms aim to attract new companies to the market, but the lack of flood insurance coverage remains a critical issue. Accurate flood risk mapping and increased awareness about the need for flood insurance are crucial to ensure homeowners are adequately protected against the devastating effects of flooding.

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